On November 18, 2022, the Supreme Court of Canada released its decision in Nova Chemicals Corp. v. Dow Chemical Co. 1 In a near-unanimous decision, the Court upheld the largest monetary award ever in a Canadian patent case and, in doing so, clarified the test for an accounting of profits. The Court also confirmed that springboard profits — profits that a patent infringer made from an infringing product after the patent expired but which are attributable to infringement that took place during the term of the patent — may be included in an accounting. This is an important decision because it sets out the analytical framework that litigants will have to consider, and courts will have to apply, to determine patent remedies.
Dow Chemical Co. (Dow) sued Nova Chemicals Corp. (Nova) for patent infringement, arguing that Nova’s polyethylene plastic products infringed Dow’s patent. In 2014 the Federal Court, 2 as affirmed in 2016 by the Federal Court of Appeal, 3 found that Nova infringed and allowed Dow to seek an accounting of profits that Nova made from that infringement.
In a subsequent 2017 Federal Court reference, 4 Dow was awarded Nova’s actual revenue from selling the infringing plastics, minus Nova’s actual costs of producing them. For the first time in Canadian law, the reference judge awarded Dow “springboard profits”, profits Nova made after Dow’s patent expired, but which were causally attributable to the head start Nova gained from its infringement during the term of the patent.
In 2022, the Federal Court of Appeal upheld this reference decision, 5 leaving Nova to further appeal to the Supreme Court of Canada (SCC).
The majority of the SCC began its analysis by confirming that the Patent Act provides three different monetary remedies for patent infringement:
A Simplified Test for Accounting of Profits
The SCC reiterated that an accounting of profits requires an infringer to disgorge all the profits it made that are “causally attributable” to the infringement of the patent after the patent was granted.
Courts have typically characterized accounting of profits as a choice between various calculation approaches (including the “differential costs” approach, the “full costs” approach, and the “differential profits” approach). However, the SCC noted that these approaches are not that distinct, as they all begin by determining the infringing product’s actual revenues and actual costs.
Therefore, the SCC simplified the accounting of profits assessment into a single three-step test:
Clarifying the “Non-Infringing Option”
The SCC defined a “non-infringing option” as any product that can help the court isolate the profits causally attributable to the patented invention from profits which arose at the same time but were not causally attributable to the invention.
In other words, a non-infringing option helps a court deduce what portion of the infringer’s profits were made because of the patented invention, as opposed to other non-infringing aspects of the infringing product. This is done by comparing the profit the infringer made from the infringing product to the profit it could have made if it had sold a similar product without the patented feature.
While a non-infringing option does not need to be an exact market substitute for the infringing product, the majority found that it is not simply the infringer’s most profitable alternative product that it would have sold in place of the infringing product. The infringer has the evidentiary burden of proving a non-infringing option exists.
Springboard Profits are Legally Permissible
Lastly, the SCC confirmed that “springboard profits” — profits an infringer made after the patent expired, but which are nonetheless attributable to infringement that occurred during the term of the patent — can be awarded in Canada.
Springboard profits are awarded as part of an accounting of profits assessment because they are consistent with the overall emphasis on causal attribution. Specifically, if an infringer begins to sell, take orders for, or advertise an infringing product during the term of the patent, the infringer can build up market share and sales capacity for the infringing product and depress the patent owner’s sales, which the infringer can exploit after the patent expires. Therefore, the profits the infringer made after the patent expired can be attributed to the initial infringement during the term of the patent, making them appropriate to award in an accounting of profits assessment.
The Dissent
Madam Justice Côté wrote a strong dissenting opinion. She would have allowed the appeal on the basis that a non-infringing option does not have to be a true consumer substitute for the patented product. Justice Côté agreed that springboard profits can be included in an accounting.
In the result, the SCC dismissed Nova’s appeal, concluding that the reference judge did not err in any of his key findings: Nova’s profits from its sales of the infringing plastics product were causally attributable to Dow’s patent. The SCC also held that the reference judge did not err by awarding springboard profits to Dow. Nova used its infringement of Dow’s patent to enter the market early, build market share, and exploit that market share after Dow’s patent expired, so its post-expiry profits were causally attributable to the infringement.
This decision provides structure to calculating an accounting of profits award. By re-characterizing the assessment as one test instead of a choice between three approaches, accounting of profit assessments can be more consistent and straightforward. This case also confirms that springboard profits can be awarded.
Despite these useful clarifications, some uncertainty remains:
Stay tuned — additional clarification on the accounting of profits remedy may come soon as lower courts apply the SCC’s analytical framework to the matters before them.